Terry and Jim Are Both Involved in Operating Illegal Businesses

question 83

Multiple Choice

Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug-running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses. $\begin{array}{lrr}&\text { Terry }&\text { Jim }\\\text { Employee salaries } & \$ 200,000 & \$ 200,000 \\\text { Bribes to police } & 25,000 & 25,000 \\\text { Rent and utilities } & 50,000 & 50,000 \\\text { Cost of goods sold } & -0- & 125,000\end{array}$ Which of the following statements is correct?

• A) Neither Terry nor Jim can deduct any of these items in calculating the business profit.
• B) Terry should report profit from his business of $250,000.
• C) Jim should report profit from his business of $500,000.
• D) Jim should report profit from his business of $250,000.
• E) None of these.

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